410,000 condos were sold in October 2023 at a median price of $356,000. Condominiums have become a popular option for home buyers as they are cheaper and easier to maintain.
However, obtaining condo loans is relatively more difficult than financing single-family homes, as they carry a higher interest rate.
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Applying for Condo Home Loans
- You can get USDA loans and VA loans to buy a condo with zero down payment.
- You cannot get conventional financing for your condo home unless it is warrantable.
- Conventional condo mortgages allow a maximum DTI of 36%. Whereas FHA loans allow a maximum of 50% and VA or USDA loans allow a maximum DTI of 41%.
What Is a Condo Loan?
A condo mortgage allows you to purchase condominiums. You can use these properties as primary residences, vacation homes, or investments. In addition, condo mortgage lenders may have different requirements for condo financing.
Interest rates on condo home loans can be a bit higher. They can be risky for mortgage lenders due to HOA regulations and requirements.
What Is a Condo?
Condominiums, or condos, are buildings that have separate units with individual owners. They usually cost less and require less upkeep than a single-family home. However, there are some common spaces that all the owners can share in this type of house.
A primary feature of a condo is that the owner only needs to maintain the unit’s interior. The Homeowners’ Association or the HOA maintains the rest of the property. The owners pay a small fee for the maintenance of outdoor spaces and common areas to the HOA.
How Do Condo Loans Work?
There are various types of loans available for condos. Moreover, lenders may evaluate the condo’s or the Homeowners Association’s financial health. They require the following details about the condo project:
- Number of units purchased
- Number of units owned by investors (non-owner-occupied)
- Deferred or upcoming special assessments
- Number of units with owners who have unpaid dues
- Lawsuits involving the condo association
- Amenities
These factors determine whether the condo is warrantable or non-warrantable. Most lenders prefer warrantable condos.
Warrantable vs. Non-Warrantable Condos
A warrantable condo is one that you can buy using a conventional loan. However, it must meet Fannie Mae and Freddie Mac’s property requirements to qualify, which are:
- A single entity cannot own more than 2 units if the building has 5–20 units. Also, they cannot own more than 20% if the building has 21 or more units.
- For investment properties, 50% of the units must be the owners’ primary residences or second homes.
- 10% of the project budget must be for reserves and maintenance expenses.
- The area for commercial spaces must be 35% or less than the building’s total area.
A non-warrantable condo does not fulfill the lending requirements of Fannie Mae and Freddie Mac. A condominium that has any of the following limitations is deemed non-warrantable:
- The HOA, or condo association, is involved in a lawsuit.
- The condo building includes a manufactured home.
- The property operates as a hotel or a motel.
- 15% of the total units are 60 days or more delinquent or behind on their HOA dues.
What Are the Types of Condo Loans?
Different types of mortgages for condos are available, however, you must fulfill their condo loan requirements.
- Conventional Loans: With a 3% down payment and a credit score of 620, you can obtain a conventional loan for a condo. However, the condo must be warrantable to qualify for the loan.
- FHA Loans: You must put down at least 3.5% and have a minimum credit score of 580 to obtain an FHA loan.
- VA Loans: Active military personnel, veterans, and eligible spouses can get VA loans with zero down payment. Moreover, VA loans are free from MIP and loan limits.
- USDA Loans: The HUD offers USDA loans to low-income individuals at 0% down payment. There’s no minimum credit score requirement; however, you must fulfill USDA income requirements and DTI requirements.
» How Much is My Condo Worth? Use a free home value calculator to determine how much finance you need for a condo.
Find Homes For Sale by Home Type and Style
The market offers a wider range of homes than ever before. But don’t get overwhelmed! Knowing your preferred style can help you narrow your search. Here are some options to target your search by home style:
Bottom Line
A condo can be a plausible option if you’re looking for an affordable single-family home. While being a low-maintenance property, a condo offers convenient amenities as well.
However, the lender may charge high interest on condo loans due to the risks involved. Moreover, you must ensure that the condo you’re looking to buy is warrantable, as most lenders only lend money for warrantable condos.
Find Your New Home With Houzeo
With thousands of property listings, Houzeo.com is one of the biggest property listing sites in the US. Find condos, townhouses, co-ops, and other types of homes for sale on Houzeo.
» NEED MORE CLARITY? Read these exclusive Houzeo reviews and learn why the platform is the best in America’s competitive housing market.
Frequently Asked Questions
Can I buy a condo with bad credit?
Yes, you can buy a condo with bad credit. There are various loan options such as FHA loans, through which you can obtain a condo loan.
Can you refinance a condo?
Yes, you can refinance your condo. However, in comparison to a traditional home, refinancing a condo can be a tedious process.
How to buy a condo with no money down?
You can opt for USDA loans and VA loans to buy a condo without any down payment.
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